Deal-of-the-year: how it got done.

By now we all know that the Real Estate Board of New York's prestigious Henry Hart Rice Achievement Award for the Most Ingenious Deal of the Year for 1993 was awarded to Brian Ezratty, senior vice president of Eastern Consolidated Properties, for negotiating the sale of the Ed Sullivan Theater and Office Building to CBS for $4.255 million.

But how did the deal transpire? What obstacles needed to be overcome? and how did the ingenious work of an ace broker consummate the sale? These are the questions that don't get answered in the brief few minutes we allot to award winners before moving on to the business at hand.

Beyond ingenuity and hard work, Ezratty said the key element to this deal was timing (sometimes called "luck" by those who experience little of it.)

In case you've forgotten, CBS purloined David Letterman from NBC amid much fanfare in late 1992 in what was one of the most highly publicized bidding wars for television talent in history. Letterman, a perennial favorite of the late, late night TV audience, had long coveted the 11:30 p.m. time slot reigned over for over a quarter century by comedian Johnny Carson.

When NBC brass announced in late 1991 that long-time guest host Jay Leno was the heir-apparent ot Carson's time slot, Letterman was half-way out the door. Even behind-closed-doors whispers that Letterman would inhert the Tonight Show spot down the road if Leno's ratings slipped were not enough to keep Letterman from jumping ship. His time had come, and he knew it.

CBS offered Letterman an incredible $48 million over 3 years and his coveted 11:30 time slot (actually 11:35 p.m.) and the chance to go head-to-head with the man for whom he had been passed over. It was too good of a deal to resist.

Now the big question was from where Letterman would tape his new show. Speculation had Letterman headed for California, where in theory he would have a better shot at luring Hollywood-types to compete with The Tonight Show's high profile guests.

Then-Mayor David Dnkins was frantic to keep Letterman in the city, which had been suffering from declining film and television industry revenues due to union costs and other problems. The question was, how could the city entice Letterman to stay?

Enter Brian Ezratty. In late 1992, Eastern Consolidated Properties was hired by First Winthrop Associates, a Boston-based syndicator, to sell the 133,000 square-foot Ed Sullivan Theater and Office Building at 1697 Broadway between 53rd and 54th Streets. According to Ezratty, who got the assignment, he strongly suspected that Eastern was recommended to First Winthrop by a very large real estate firm which viewed the prospective assignment with "distaste," and for good reason.

The property had been allowed to deteriorate and was half vacant. The lower three floors of the office building portion of the building did not just have poor light and ventilation, they had no windows at all because they were backed against the historic theater, rendering a large portion of the property unrentable for most space users.

The building was losing $200,000 a year on operations alone, and that was before the cost of an $11 million mortgage held by Sanka Bank. At one time, the 350,000 square feet of development rights were valued at over $20 million, but now they were virtually worthless. The property was in foreclosure, which had been stayed pending a sale.

"We were told we had to produce a least $3 million in cash to make the situation go away," Ezratty recalls. "It was a bleak picture, but I jumped at the assignment because the players involved were substantial and had other major real estate assignments comingg up that I hoped to have a shot at landing."

After accepting the assignment, Ezratty realized that the picture was even worse than he had imagined. The existing theater tenant had not paid rent in over a year and was deep in litigation with the owner, as the property was full of asbestos and the theater portion had numerous structural and mechanical problems. The agreement over whose responsibility it was to correct the deficiencies.

Furthermore, the interior of the theater was landmarked, severely resticting any alteration by another user who might need changes to fit their needs. Access to the property was also a problem, as the owners' attorneys had begun more legal fighting to allow Eastern the necessary access to market the property.

"From the point of view of an investor in real estate, I realized that it would probably be difficult to even give this building away," recalls Ezratty. "Therefore, I began the campaign by canvassing all possible useers, including television stations, recording studios, theater owners and production companies."

In the meantime, Ezratty developed a good working relationship with the tenant in the theater, which ended up being a critical ingredient in the deal. "He had some legitimate complaints, but was a maverick and didn't mix well with institutional ownership," recalls Ezratty. "I explained to him that the property was soon to change hands one way or another and trade to someone who was going to come in with fresh capital."

Ezratty explained to the tenant that if an investor came in, Eastern would work with them to address the structural deficiencies he had been complaining about. If a user came in, Ezratty pledged that he would try to fashion an acceptable offer to the tenant to vacate the premises and reimburse him for the money he had spent on his own to upgrade the theater.

Turning an adversary into an asset, Ezratty began to draw on the tenant's knowledge of the rich history of the Ed Sullivan Theater, where 30 years earlier the famed variety show host first introduced The Beatles to America in a show viewed by an estimated 73 million people worldwide.

The tenant began to share his knowledge and experience with the Landmarks commission with any prospect that Ezratty subsequently brought into the theater and became an invaluable ally in explaining the interior landmarking issues, which were very complicated.

"Based on these conversations, I realized that certain alterations to the space could in fact be accommodated," explains Ezratty. "This knowledge became critical later in convincing the Letterman people to take the deal seriously. I then asked the ownership to call off the lawyers and let me handle matters with the tenant. They agreed."

With this newfound cooperation, Ezratty was able to gain proper access and proceeded to show the theater and office building to a wide variety of users and investors, ranging from the Nederlander Organization to rock promoter Ron Delsener. He tried to sell the concept of purchasing the property to CBS early in the assignment, but since they had no immediate use for it, they were not interested. Ezratty waded through dozens and dozens of other potential users and investors.

Finally, Ezratty reached a deal in principal with an Indian investor who thought that $30-odd per square foot might be cheap for bricks at 53rd and Broadway, despite all the problems. The attorneys began drafting a contract at about $3.8 million. But Ezratty sensed that the investor might be wavering and felt he needed a back-up.

He again contacted the major television studios in an effort to rekindle their interest, and began to hear rumors that CBS was talking to David Letterman about jumping ship and switching networks, although CBS refused to confirm anything.

Shortly thereafter, CBS announced that they were indeed signing Letterman away from NBC at a record salary, and now needed a home for the new "Late Show with David Letterman."

"I felt strongly that the Ed Sullivan Theater, with its rich history and prior occupancy by CBS years ago, made it an ideal candidate," says Ezratty. "I petitioned CBS for a re-hearing on the issue and they agreed to reconsider the purchase. I made another presentation to John Malino (of Loews Corp.), Larry Tisch's representative, and other CBS executives and argued that the various roadblocks could in fact be overcome."

Despite being wooed by several other major cities, including Miami, Los Angeles and Atlanta, CBS was interested, but there were major obstacles to overcome. By now it was january, 1993, and the show had to be on the air by late August. There was an angry theater tenant still in possession, a major renovation to be undertaken to suit Letterman's needs, interior landmarking issues and just six months to get it done. In addition, some sort of deal had to be made with the Indian purchaser whose offer was first accepted.

A whirlwind of events greeted the next few weeks, as Letterman narrowed the choices to New York and LA and left for the West Coast to visit several potential theater sites. Published reports had LA named the winner, but Letterman personally and secretly chose the Ed Sullivan Theater site.

Tisch instructed Malino to work something out, and Ezratty used the first buyer, who was wavering on the deal, as leverage to get a better price for his client. Eastern agreed on price and terms with First Winthrop, then convinced their leader, who also had to sign off on the deal, that this was an excellent price for the property.

Ezratty then turned his attention to the theater tenant, who quickly discovered what was going on, knew they needed the theater vacant and thought that his ship had come in. After lengthy negotiations, they agreed upon a forumla which gave the tenant two floor in the office building for five years with two years free rent and a lucrative consulting assignment.

CBS had one major stipulation: everyone involved in the transaction was required to keep the negotiations strictly confidential. CBS wanted to make the announcement and press build-up themselves when the deal was finalized.

Contract negotiations continued for the next few days and all players involved were at the final drafting stage late on a Thursday evening, except the theater tenant. A frantic CBS public relations person broke into the meeting with some news that could have jeopardized the deal. It seems the tenant was interviewed on the evening news and let the cat out of the bag. Channel 9's Roland Smith reported that the tenant hadd sold the theater to CBS.

Needless to say, Malino and Ed Grebow of CBS went ballistic and instructed Ezratty to call the tenant and tell him the deal was dead. They refused to have him in the building after what he had done and said the only way they would make the deal was if Ezratty got the tenant completely out of the property, - and quickly.

They made a deal giving the tenant 4 weeks to vacate the theater and cancel all future bookings. At 2 a.m. they reached a verbal agreement which now had to be re-drafted.

Ezratty now had to locate the tenant, and with the help of associate Ronda Rogovin, developed a list of 20 alternative sites for him to move, which included space at 254 West 54th St., the old home of Studio 54, which the tenant okayed. They agreed to terms with that owner to get the tenant two full floors, but the deal was complicated by the fact that a reciever had been appointed for this site just a few days earlier and approval was needed by the receiver and a judge.

Easter managed to get the necessary approvals in record time and moved the tenant out five days after CBS closed on the Ed Sullivan property Following the closing, CBS worked closely with the Landmarks Commission and worked out an acceptable renovation scheme. Over $12 millin was invested in the property by CBS, as 200 construction workers worked round the clock.

Letterman'sdstaff was moved into three of the office floors, as other tenants were carefully juggled around the building. From signing to closing th transaction took just 3 weeks. Attorneys for both sides worked around the clock for a week as well to sign a contract of sale, a contractt to buy out the lease and a license agreement with the theater tenant to cover the five days of occupancy time after closing. The project was finished in the nick of time, and the first Late Show with David Letterman opened to an extraordinary debut.

The repercussions of this deal are still being felt today. Letterman has vaulted to the top of the late night TV ratings, and each and every weeknight, millions of viewers around the world are treated to the splendid views of New York City in the opening of the show. You can't get that kind of public relations for all the money in the world.

The resurgence of the Ed Sullivan Theater has been a transfusion for the immediate neighborhood and business, as occupancy has soared, taking advantage of the hundreds of tourists and native New Yorkers who make tickets to the Late Show the centerpiece of their visit to the city. There is presently a four month waiting list for tickets. Letterman has made celebrities out of local business people with his roving cameras, whether it be getting the copier lady to Xerox her face for the audience; seeing what kind of "free stuff" he can get out of the local electronics store; or turning 53rd Street into a bowling alley, complete with Hall of Fame bowler Dick Webber smashing pins, televisions and all manner of other objects.

It is no coincidence that NBC has decided to jump on the bandwagon, moving their Today Show studios down to street level at Rockefeller Center in an effort to capture that New York spirit so evident on the Letterman show. Disney has also decided that New York is the place to be, recently announcing their own plans to renovate the New Amsterdam Theater for stage productions. And FOX has also decided to establish the headquarters for their new FX Network in Midtown South near Madison Square 

Park. And Letterman himself has lent his image to a new advertising campaign for nearby Times Square. The radio spots and bus ads feature a Letterman caricature, complete with ever-present cigar, touting "Time Square: Everything you want in a neighborhood."

While these latest development cannot solely be credited to Ezratty's ingenious deal to sell the Ed Sullivan Theater and Office Building, they certainly were a big factor in bringing media attention and positive publicity back to this part of the city.

What can be directly attributed to the deal are these facts: Eastern Consolidated Properties was able to take an aging and decrepit property which was losing $200,000 a year and return it to the glories of the past and beyond; 200 construction workers, architects and engineers were employed round the clock for six months completing a job which they will remember the rest of their lives; and a new anchor has been added to an otherwise listless area of the West 50s and undoubtedly has property values, particularly retail values, in the surrounding neighborhood.

All of this was accomplished by a broker with vision and determination, who turned away all the nay-sayers because he knew that all this could be accomplished. He even managed to make an extra commission on the lease for the old tenant in the old Studio 54 site.

Through it all, Ezratty has remained modest, saying "Ingenuity aside, I feel compelled to add that there was a solid measure of luck involved. I was very fortunate to have the tremendous forcefulnes and skills of Johns Malino at Loews and the senior CBS executives, who knew how to put things on a fast-tract when presented with the right situation. It was truly remarkable how everything came together."